Market Power

Musings by an academic economist on the power of markets and the power over markets.

Saturday, December 11, 2004

Surgery and Game Boys

I saw the report contained in this article in the local paper. Playing Game Boy games before surgery is an effective ways of getting youngsters to calm down beforehand.

It doesn't surprise me. I have a Game Boy Advance that I take with me on airline trips. I'm not that keen on flying, but playing the Game Boy takes my mind off things when I'm enroute. It also makes things go much quicker.

Except when I'm playing a game in which my character plunges to death from some ridiculous height. Then I'm reminded of where I am.


A Four-Year Old Moment

My 4-year old durable, er, son, is PO'd at me. He insists that I moved too far in my last turn in the Candyland game we were playing. I swear... I moved my game piece to the correct square.

It's good to see that he wants to win, but I'm trying to instill the habit of playing by the rules and that coming in second is sometimes part of the game.

But all I seem to be getting is high blood pressure ;-)


Friday, December 10, 2004

Nice Puppy!

Ouch! Here is another reason why you should not &%$# with a police dog.

If this man's name was Ryan, we could make a movie of his doctors' ordeal called "Saving Ryan's Privates."


Thursday, December 09, 2004

Boomer Sooner - Part Deux

I think even I could remember the lyrics to the first two verses of Boomer Sooner.

Boomer Sooner, Boomer Sooner, Boomer Sooner, Boomer Sooner, Boomer Sooner, Boomer Sooner, Boomer Sooner, O-K-U!

Oklahoma, Oklahoma, Oklahoma, Oklahoma, Oklahoma, Oklahoma, Oklahoma, O-K-U!

I'm a Sooner born, and a Sooner bred, and when I die I'll be a Sooner dead! Rah, Oklahoma! Rah, Oklahoma! Rah, Oklahoma! O-K-U!

Here's the source.


Boomer Sooner - Part Un

The 2000 football season was good to the Oklahoma Sooners. Not only did they win the Mythical National Championship in football, but the program turned an $18 million profit, according this article on In nominal terms, that's more in profit than 4 of the 6 Big XII North football teams generated in *revenue* during the 2002 football season.

Damn. It's good to be the king.


The Impact of College Hockey - Part Trois

In a previous post I linked to an article describing the bad feelings amongst some businesses in Mankato, Mn. about Minnesota State University's decision to move a home hockey game from Mankato to St. Paul. The Econoclast has this post about the economic impact of the lockout of NHL players. Professor Palmer reminds us that hockey fans just find something else to do during the lockout. It's not like they go out and burn the money they would have spent on the NHL.

The businesses most upset about the MSU decision are the bars, restaurants, and the hotels in Mankato, especially those in downtown Mankato wherethe Midwest Wireless Civic Center, is located. These are the businesses that will feel the loss of business from the move of the hockey game.

I haven't heard anything about other businesses bitching about the Mavericks leaving town for the weekend. Home Depot, on the eastern edge of town, will probably do just fine, thank you. I don't think the local movie theaters are too PO'd either.


The Baseball Player's Labor Market - Part Deux

In this earlier post, I briefly described the baseball player’s labor market. The Major League Baseball Players’ Association (MLBPA), we’d think, would be champions of the free agent labor market. Before free agency, all players were reserved. The reserve clause allowed teams the option of renewing each player’s contract once that contract expired, essentially binding the player to that team until the player quit the league or the team traded/sold the contract to another team. This held salaries down. Free agency would give players more options, create more competition for players, and increase their salaries. Logically, the MLBPA would be a likely champion of unlimited free agency. Well, as Lee Corso would say, “Not so fast my friend.”

Free agency was ushered in via an arbitration decision in 1975 regarding Andy Messersmith and Dave McNally. Both McNally and Messersmith had played the 1975 season without a new contract. Marvin Miller, head of the MLBPA at that time, thought he had found a loophole in the Collective Bargaining Agreement that would make the two players free agents. The case went to an arbitrator, Peter Seitz, who concurred with Miller. Free agency was here to say, and Marvin Miller was happy…. Right?

Here’s a quote from Miller (my source for the quote is Rod Fort’s Sports Economics Text):

“In the wake of the Messersmith decision…, it dawned on me, as a terrifying possibility, that the owners might suddenly wake up one day and realize that yearly free agency was the best possible thing for them: that is, if all players became free agents at the end of each year, the market would be flooded, and salaries would be held down…. In the midst of all the panic in the owners’ ranks after the” (Peter Seitz) “arbitration decision… there was” (Charley) “Finley” (then owner of the Oakland A’s), maybe the only original thinker in the group, saying, ‘Hey, what’s the problem? Let them be free agents every year. It’ll flood the market with players; it’ll keep salaries down.’ It was so logical, so obvious, that to this day I cannot understand why other owners did not think of it.

No, players don’t like competitive labor markets either if market power is one of their choices.


Wednesday, December 08, 2004

Free Agency History in Baseball

Jerome Holtzman has this little history about the beginning of free agency in baseball. I like this quote from long ago:

"This was just over a quarter of a century ago but only two teams, the Phillies and Yankees, had player payrolls in excess of $3 million; today it's the cost of an experienced utility infielder. The average Phillies' salary was $139,916 while the Yankees' checked in at $138,973, each more than twice the average. There were cries of doom. Bankruptcies were inevitable.... "

It's been over a quarter century and not only did no team become bankrupt during that time, no team moved to greener pastures until this year. That's a remarkable period of stability for professional sports in the US.


How to Dress for a Formal Occasion

Here's what Howard Trevor Jacobs wore to accept the Descartes prize:

"It is the latest kit for any self-respecting world-ranking scientist: Ramones T-shirt, kilt, bovver boots, leather jacket, ear studs, shaven head, Tintin tuft, and optional wrap-round shades. Without it, you would feel underdressed."

I may try this in front of one of my classes... except I'm not a big Ramones fan. Can I wear a Metallica T-shirt? I think I'll wear clip-on ear studs cuz I ain't gonna pierce my ears.

I tried to find a pic, but couldn't. You can read more here in the Guradian Unlimited.


The Baseball Player's Labor Market - Part Un

Major League Baseball’s labor market has three tiers: reserved players, arbitration eligibles, and free agents. Reserved players, those with less than 3 years of major league service, are bound to their teams by the reserve clause. If a reserved player’s contract expires, the club has the option of renewing the contract on the same terms for another year. The player’s only choice is to leave the league if the club picks up that option. All else equal, reserved player's salaries are held down.

Arbitration-eligible players have between 3 but less than 6 years of major league service. These players are also subject to the reserve clause. But if the player and his club can’t reach an agreement on the player’s salary, the player has the option of filing for arbitration. In arbitration, if a dispute cannot be avoided, then a supposedly neutral third party renders a binding decision.

Free agents are players who are not reserved: they can bargain with other teams once their contract is up.

What’s really interesting, IMHO, is that all three tiers are interrelated. Baseball’s Collective Bargaining Agreement lists 6 specific criteria that arbitrators are allowed to consider. One of those criteria is “comparable baseball salaries”, salaries of baseball players who are “comparable” to the player in question. This rule effectively brings the operation of the free agent market into the arbitration system, bumping up the salaries of arbitration-eligibles. As for the reserved players who are not eligible for arbitration, some may sign long-term agreements with their clubs to keep them under contract and effectively keep them from going through the arbitration process. But these long term contracts should bring the effects of the arbitration system back into the reserved player tier, bumping up their salaries as well.

The way that the threshold for free agency is set (6 years of service) is quite possibly the threshold that maximizes the salaries of all players collectively. Free agency is a good thing for the players' union. Or is it?


How to Upset Students and Drive Home a Point

Here’s a thought experiment to give your students next semester/term (if you are a teacher). Tell them that the score a student gets on the first exam will be the score you’ll put towards that student’s grade. Then tell them that on their second test, each student will get the average score of all students – regardless of how each individual performs.

On which test will students put forth greater overall effort and generate the most overall points? I’d be willing to bet the whole farm (if I owned one!) that they’d do better on the first test.

Besides pissing off your students, you can drive home the point that taxes and transfer payments reduce the incentive to work.

Thanks to my colleague Bob Simonson for the example.


Tuesday, December 07, 2004

The Impact of Probation on One College Basketball Fan

At least the Steelers are doing well. All my other teams have sucked or are sucking wind. When the Missouri Tiger basketball program went on probation this fall, I immediately cancelled my subscription to ESPN Full Court, the college basketball package I bought via DirecTV, and my subscription to listen to Missouri basketball radio broadcasts via Yahoo. Does that make me a bad fan? No. It makes me an ordinary consumer. When the quality of things I consume falls, given what I must sacrifice, I consume less.

In short, I have better alternatives.


That's One Tough Quiz!

I gave the last quiz of the semester on Monday to my Principles students. One student handed back her test. She had bled all over it.

Damn. I knew that my tests were challenging, but I don't intend for them to physically injure my students!


It Ain't Just Them Rednecks

Skip Sauer has this eye-opening post on public subsidies. Seems Bass Pro Shops is in on the act. Maybe this explains the monstrosity going up on Highway 63 in Columbia, Mo.

Not only is Bass Pro getting public subsidies to build new stores across the country, but one of their big competitors is as well: Cabela's. Here is an example.

How long before little Scheel's gets in on the act?


Economic Impact Statements

Here is a nice piece of work by John Palmer on how to approach doing Economic Impact statements. Among other things, he describes the pitfalls associated with using the multiplier analyses so-often (mis)used in such statements.


Today is the Day!

Today’s the day in baseball! Teams have until midnight tonight to offer their current free agents arbitration. If another team signs the player before today’s deadline, it must give the player’s old team a draft pick as compensation.

If a player’s current team does not offer him arbitration, it loses the right to bargain with him until May 1st.

If his current team does make this offer, it retains the right to negotiate with him until January 8th. If he signs elsewhere, his team gets a draft pick as compensation. But the team runs the risk that the player will accept the offer. If he accepts the offer, then the team will have to go through the arbitration process with the player. The decision to offer arbitration to a free agent depends upon a comparison of the costs and benefits of making the offer.

As of noon CST here in Minnesota, of the more than 200 free agents available on the market, only 25 have signed contracts (23 in the Majors in the US) at this time. The restrictions placed on the market by the arbitration deadline is one reason for this. I expect there to be much more activity in the next couple of days.


Rottenberg vs. Coase

In his Sports Economics textbook, Rod Fort (2003) describes Simon Rottenberg’s (1956) Invariance Hypothesis thusly:

“The distribution of talent in a league is invariant to who gets the revenues generated by players; talent moves to its highest valued use in the league whether players or owners receive players’ MRP’s (marginal revenue products – the amount of additional revenue a player contributes to his team).”

In their Principles of Economics textbook, Robert Frank and Ben Bernanke define the Coase Theorem (1960) as follows:

“If at no cost people can negotiate the purchase and sale of the right to perform activities that cause externalities, they can always arrive at efficient solutions to the problems caused by externalities.”

Both Rottenberg’s Invariance Hypothesis and the Coase Theorem describe the same essential principle – the distribution of property rights does not determine the distribution of resources as long as negotiation is costless. It only determines the distribution of income. I realize that the date on which an idea is published is not the date that it was developed (researchers wish the market for journal publications would work so quickly!), but the date of publication is often held to be *the date* that an idea hit the intellectual marketplace. With this interpretation, the Invariance Hypothesis beat the Coase Theorem by 4 years, but the great Ronald Coase gets the credit.

Being a loyal sports economist, I tell my students that although the principle is called the Coase Theorem, it originally hit the intellectual marketplace in an application of economic theory to the labor market in baseball.


Sunday, December 05, 2004


Unless Alzheimers has set in, I think this is the first semester that this did not happen: no student came to me and said that he/she doesn't do well on the math portions of my exams because he/she has a math disability.


Death of a Tiger

We rarely know what goes on inside the minds of the athletes we watch on the playing field. We don't know their aspirations or their demons.

Along with tens of thousands of other people, I watched Tiger fullback Ernest Blackwell run a play that I equated with him. In a two-back set, he would take a quick hit from the QB, bolt through a hole directly in front of him, and sprint, with 4.4 speed, untouched to the endzone.

On August 11th of this year, Ernest Blackwell died. It's a very sad tale that is told well in this Kansas City Star article.